S&P 500 broad market index futures rose by
1.4% to 5543 points, marking a new all-time high. The index could perform even
better with the release of Nonfarm Payrolls (NFP) data today.
Wall Street anticipates a slight cooling of
the labor market in June, with Nonfarm Payrolls forecasted at 189,000 versus
272,000 in May. Unemployment is expected to remain at 4.0%, while hourly
earnings are projected to slow to 0.3% MoM from 0.4% MoM. Our statistical
modeling suggests similar numbers, with NFP likely between 189,000 and 201,000.
The rise of initial job offerings by 17,000 this week suggests NFP closer to
189,000. Unemployment could remain at 4.0% or increase to 4.1%, with a 35%
chance of the latter. Even a slight labor market cooling could push the S&P
500 index higher towards extreme targets at 5650-5750 points.
Other macroeconomic data also indicate a
slowdown in the American economy. ISM released weak Manufacturing PMI below
50.0 points, and June Services PMI tumbled to 49.6 points, the lowest since May
2020, signaling a contraction. This is positive for the markets as it pressures
the Federal Reserve (Fed) towards a dovish stance. Bets on interest rate cuts
by the Fed in September jumped to 72.6% from 65.9%. However, the Fed reaffirmed
its hawkish stance in the latest FOMC Minutes, removing the indication of the
three-month series of slowing inflation to cut rates.
The U.S. economy is indeed slowing. The
Atlanta Fed GDPNow model projects Q2 GDP to slow to 1.5% QoQ. Despite this, the
Fed is unlikely to intervene unless the economic situation worsens
significantly.
The Q2 corporate reporting season starting
next week may further highlight the economic slowdown. Given the strong
correlation between GDP and the stock market, the S&P 500 index, which rose
by 15.5% this year, appears overextended compared to the slowing GDP. Hence, a
correction is likely before achieving extreme targets. A standard correction is
5-7%, but political and geopolitical chaos could deepen it.
This week, the second round of early
parliamentary elections in France will be held. The left-wing New Popular Front
(NFP) and President Emmanuel Macron’s Ensemble alliance seem poised to form a
majority to confront the far-right National Rally party led by Marine Le Pen. A
coalition victory would stabilize the markets.
Investors are also keenly watching Joe Biden’s
statements regarding his presidential campaign. Chances of Vice President
Kamala Harris replacing Biden in the race for the White House are rising.
Next week, the June inflation report for the
U.S. will be released. The 5% rise in oil prices in June could disrupt the
April-May-June inflation decrease series.
Large investors are waiting without making
significant moves. The SPDR S&P 500 ETF Trust (SPY) reported $18.0 million
net outflows this week compared to net inflows of $16.6 billion last week.
Everyone is in a holding pattern.
From a technical perspective, the S&P 500
index outlook remains largely unchanged. It has surpassed its primary targets
of 5250-5350 points and is now aiming for extreme targets of 5650-5750 points,
potentially achievable this week. Immediate resistance is at 5570-5590 points,
with support at 5470-5490 points.
Oil prices are holding above the support level
of $80.00-82.00 per barrel for Brent crude, hitting resistance at $88.00-90.00
per barrel. This climb is supported by OPEC+, which indicated that any increase
in oil production in October would be symbolic compared to current levels.
Political tensions in the Middle East also support prices. However, a
technically favorable period for oil prices will end this week, potentially
limiting upside potential.
Gold prices, having reached mid-term targets
of $2000-2100 per troy ounce, are now eyeing extreme targets of $2400-2500.
There is limited room for further increases, and a pullback could occur soon.
For a downside scenario targeting $2200 per ounce to materialize, support at
$2300-2320 must be breached. Immediate resistance is at $2390-2410.
The Dollar is retreating, with EURUSD climbing
above 1.07700 on political uncertainties and weak U.S. macroeconomic data.
Cooling of the U.S. labor market may send the pair to 1.08500, installing a new
upside pattern with targets at 1.10000.